Interestingly, Yum Brands will be reporting its first quarterly report since the spinoff of the China division.
Baird expects “satisfactory Q4 results” from Yum Brands and anticipates the restaurant firm to guide to double-digit EPS growth for 2017. The same-store sales and licensing contribution from China will now be reported into the three global brand segments (KFC, Taco Bell, Pizza Hut).
Analyst David Tarantino sees EPS of $0.75 (consensus $0.73) on global system comps of +2 percent (consensus +2.1 percent).
For KFC, Tarantino models fourth quarter comps of +3 percent, flat with third quarter and sees potential upside on improved China trends.
For Pizza Hut, the analyst remains comfortable with his flat comps estimate for the quarter. That said, Tarantino cut his fourth-quarter comp forecast for Taco Bell to +2 percent (from +3 percent; consensus +2.7 percent) on signs of industry slowdown in December.
Tarantino, who has a Neutral rating on Yum Brands shares, sees 2017 EPS of $2.75 (consensus: $2.76) on global comps of +3 percent.
“Our rating on YUM reflects a positive view of the company's asset-light business model and longer-term growth opportunities, tempered by current valuation metrics,” Tarantino wrote in a note.
Meanwhile, Tarantino does not consider the Dunkin’ Brands quarterly report as a meaningful positive catalyst for the stock as industry softness in December limits upside in comp and late-quarter weather issues raises the probability of slight shortfall in U.S. unit openings.
The analyst projects fourth quarter EPS of $0.60 (consensus: $0.61) on Dunkin' U.S. comps +2.0 percent (consensus +2.1 percent).
The analyst also expects the company to guide to 2017's unit growth in the lower half of its long-term target of 4–6 percent, given rising labor inflation and tough regulatory environment.
That said, Tarantino is optimistic that the potential pro-business policies of Trump would boost the pipeline heading into 2018.
Outperform Rating Justification
The analyst, who has an Outperform rating on the stock, sees 2017 EPS of $2.44 (consensus $2.42) on Dunkin' U.S. comps of +2.3 percent.
“[W]e see opportunity for a better fundamental picture to emerge as 2017 progresses, and as a result, we still think the one-year-out risk/reward on the stock leans favorably,” Tarantino added.
At last check, shares of Yum Brands were up 0.12 percent to $66.28 and Dunkin Brands were almost flat at $51.60. Tarantino has a price target of $65 on Yum Brands shares and $56 on Dunkin’ Brands shares.
Latest Ratings for DNKN
|Dec 2016||Cowen & Co.||Initiates Coverage On||Market Perform|
|Oct 2016||RBC Capital||Downgrades||Outperform||Sector Perform|
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